27 October 2010

Anything but water

Annoying facts: "replacing all of Britain’s cars with subsidised electric cars would cost the taxpayer £150 billion and, with Britain’s current fuel mix, cut CO2 emissions from cars by about 2%. For the same money, Britain could replace its entire power-generation stock with solar cells and cut its emissions by a third."

Good service or job security? "In 1999-2000 there were 2,140 fires in the Merseyside area and 15 fire-related deaths; last year (2009-10), there were 1,299 and 8. Meanwhile, the number of traditional fire officers has fallen from 1,400 to 850, saving money."

Professor Frank takes Mankiw apart: "Economists who say we should relegate questions about inequality to philosophers often advocate policies, like tax cuts for the wealthy, that increase inequality substantially. That greater inequality causes real harm is beyond doubt... There is no persuasive evidence that greater inequality bolsters economic growth or enhances anyone’s well-being. Yes, the rich can now buy bigger mansions and host more expensive parties. But this appears to have made them no happier."

UCLA Professor Emeritus William Allen says: "Mathematics, with its econometric handmaiden, was to be an aide and a tool in the service of pertinent economics -- the technical medium was not to be the substantive message... But used unwisely and naively, it turns economists into pretentious parasites on the rest of the community."

7 comments:

Moving toward electric cars in large numbers does not reduce carbon in itself. It does achieve three things: first, it reduces demands for liquid fuels which are running out and look likely to be in short supply in the near future; second, it allows for the decarbonization of personal transportation when there is decarbonization of the power grid; and third, by subsidizing the creation of an enormous supply of batteries that are in use less than 10% of the time, it supports the development of unsteady renewable supplies like wind and solar.

Professor Frank should remember that redistribution schemes have consequences. Or maybe Frank should remember the words of Frédéric Bastiat:

“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

Regarding a federal budget out of control aka out of control spending, mainly do to redistribution schemes known as entitlements, many media articles and talking heads are posing the question: "..then what will you cut [from federal budget]"? Then comes the redistribution scheme questions and who will take the politically unpopular position to cut entitlements. Of course Obama's Deficit Commission didn't touch redistribution/entitlements with a ten foot pole.

The root cause is that entitlement/redistribution schemes reform are a hot potato topic because it was purposely set up to begin with and further shaped as a hot potato topic.

If in fact the proposition that FDR pushed government spending programs and entitlements in particular as constituency building through dependency, and that politicians that followed in FDR's foot steps pushed the same constituency building through dependency, then the dependency element in fact did build a constituency (an army of government spending dependents).

"Dependency" becomes an accustom environment. The accustom environment has been shaped as an "entitlement". That is, participants in such redistribution schemes have been convinced they are not dependents upon the system, rather, they have been convinced they are in fact entitled to the system.

When it becomes clear that entitlement-dependency/redistribution scheme reform is needed, so clear that elementary math can be used to pinpoint the problem, the problem can't be discussed or confronted because: purposely formed constituency groups, who view themselves as the entitled, will act as a constituency and vote against any erosion of their entitlement due to self interest (or greed turned upside down).

The odd thing is that redistribution of income proponents, although patting themselves on the back that they have created a hot potato that can't be touched, do not realize that the redistribution system created as constituency building through dependency, is over time, a black hole. Hence in the long run the black hole destroys the productive capacity of the economy and the system caves in under the weight of redistribution of income via constituency building through dependency. Therefore, the aims of redistribution and any the final goal perceived by proponents of redistribution, can never be achieved as the purposely created hot potato is self defeating in that it produces a system that self destructs far short of any perceived goal.

Dr. Zetland posts: “what about redistribution that everyone is eligible for? how unsustainable can that be?”

As you well know the redistribution of income and wealth is a topic to be debated until the end of time. However, if everyone is eligible then you are immediately spending other peoples money on each other and Thatcher explained that concept in one sentence.

Leaving redistribution theory and entering redistribution in practice, one clearly sees disincentive for those productive elements and a disincentive for unproductive elements. It acts as a twin disincentive.

Regardless of one’s position on redistribution, one needs to clearly understand that politicos use redistribution schemes for a completely different reason. The theory and practice of redistribution are of little interest to politicos. The schemes are put into effect by politicos for their first stage economic consequences that match politicos short term political time horizons. The long term economic consequences are for the rest of us to suffer through. Current and future politicos build upon the schemes for the constituency building aspect. Eventually you have a dependency constituency group that feels entitled. Then over time when the scheme begins to fail, as we are seeing first hand in the Euro zone, then the summation of politicos constituency building through entitlements becomes apparent. The entitled constituency group dependent on entitlements through the disincentive aspect, rage against losing such entitlements.

When the system fails three politico groups appear: the told-you-so group, those that flee the scheme and disavow their allegiance, and those that want to perpetuate the scheme through short term fixes. The third group basis their position on “the way things ought to be” and argue through verbal virtuosity that removing the scheme is not “fair” (what ever “fair” means). In other words, they use the exact same arguments that began the scheme in the first place. “The way things ought to be” is not a viable economic proposition. Rather, it’s a non-economic proposition.

“Dollar voters get what they want from the market place. Ballot voters get less of what they want and get more of what political internal constituencies want”. (Dementz, From Economic Man to Economic System, chapter nine, The Contrast Between Firms and Political Parties, page 135).

Lets see, “good" social programs, through enlightened politico speakers, on grand missionary work, lead the ballot voter (external constituencies) to believe that internal constituency agendas will benefit them. All the while the “benefit” is a mirage as the real benefit is political constituency building through dependency. -Or- as H.L. Mencken observed: “.....the worship of Jackals by Jackasses.”